CIHM 
Microfiche 
Sbiies 
(Monographs) 


ICMH 

Collection  de 
microfiches 
(monographies) 


Canadian  Institute  for  Historical  Microredroductions/lnstitut  canadien  de  microreproductions  historiques 


©20 


n 

■  J 


I    ■ 


Technical  and  Bibliographic  Notes  /  Notes  techniques  et  bibliographiques 


The  Institute  has  attempted  to  obtain  the  best  original 
copy  available  for  filming.  Features  of  this  copy  which 
may  be  bibliographically  unique,  which  may  alter  any  of 
the  images  in  the  reproduction,  or  which  may 
significantly  change  the  usual  method  of  filming  are 
checked  below. 

j    /I    Coloured  covers  / 
i-^'    Couverture  de  couleur 

I      1    Covers  dan-iaged  / 

' 1    Couverture  endommagee 

I      I    Covers  restored  and/or  laminated  / 
■ 1    Couverture  restauree  et/ou  pelliculee 


Cover  title  missing  /  Le  titre  de  couverture  manque 


I I  Coloured  maps  /  Cartes  geographiques  en  couleur 

I      1  Coloured  ink  (i.e.  other  than  blue  or  black)  / 

' 1  Encre  de  couleur  (i.e.  autre  que  bleue  ou  noi 

I  Coloured  plates  and/or  illustrations  / 


(i.e.  autre  que  bleue  ou  noire) 

rations  / 
Planches  et/ou  illustrations  en  couleur 

Bound  with  other  matenal  / 
Relie  avec  d'autres  documents 


□ 


Only  edition  available  / 
Seule  edition  disponible 

Tight  binding  may  cause  shadows  or  distortion  along 
interior  margin  /  La  reliure  serree  peut  causer  de 
I'ombre  ou  de  la  distorsion  le  long  de  la  marge  r 

inteneure.  L 

Blank  leaves  added  during  restorations  may  appear 
within  the  text.  Whenever  possible,  these  have  been 
omitted  from  filming  /  Use  peut  que  certaines  pages 
blanches  ajoutees  lors  d'une  restauration 
apparaissent  dans  le  texte.  mais,  lorsque  cela  etait 
possible,  ces  pages  n'ont  pas  ete  filmees. 

Additional  comments  /  Pagination  is  as  foTloNs:   p.    [l],  622-634. 

Commentaires  supplementaires: 


L'Institut  a  microfilme  le  meilleur  exemplaire  qu'il  lui  a 
ete  possible  de  se  procurer.  Les  details  de  cet  exem- 
plaire qui  sont  peut-etre  uniques  du  point  de  vue  bibli- 
ographique,  qui  peuvent  modifier  une  image  reproduite, 
on  qui  peuvent  exiger  une  modification  dans  la  metho- 
de  normale  de  filmage  sont  indiques  ci-dessous. 

j ,1    Coloured  pages  '  Pages  de  couleur 

I I    Pages  damaged  /  Pages  endommagees 

Pages  restored  and/or  laminated  / 
Pages  restaurees  et/ou  pelliculees 

|~?    Pages  discoloured,  stained  or  foxed  / 
'^^    Pages  decolorees,  tachetees  ou  piquees 

j j    Pages  detached  /  Pages  detachees 

j  \/\    Showthrough  /  Transparence 


Quality  of  pnnt  varies  / 
Qualite  inegale  de  I'impression 

Includes  supplementary  material  / 
Comprend  du  materiel  supplementaire 

Pages  wholly  or  partially  obscured  by  errata  slips, 
tissues,  etc.,  have  been  refilmed  to  ensure  the  best 
possible  image  /  Les  pages  totalement  ou 
parlieilement  obscurcies  par  un  feuillet  d'errata,  u.ie 
pelure,  etc.,  ont  ete  filmees  a  nouveau  de  fa?on  a 
obtenir  la  meilleure  image  possible. 

Opposing  pages  with  varying  colouration  or 
discolourations  are  filmed  twice  to  ensure  the  best 
possible  image  /  Les  pages  s'opposant  ayant  des 
colorations  variables  ou  des  decolorations  sont 
filmees  deux  fois  afin  d'obtenir  la  meilleure  image 
possible. 


This  item  is  filmed  at  the  reduction  ratio  checked  below  / 

Ce  decumer.t  est  flime  au  taux  de  reduction  indique  ci-dessous. 


lOx 

14x 

18x 

22x 

26x 

"^Dy 

12x 

16x 

20x 

24x 

?Ay 

lOw 

The  t'opY  filmed  here  has  been  reproduced  thanks 
to  the  generosity  of: 

Legislative  Library  of  Manitoba 
Winnipeg 


L  exemplaire  film*  fut  reproduit  grace  i  la 
g6n6rosit6  de: 

Legislative  Library  of  Manitoba 
Winnipeg 


The  images  appearing  here  are  the  best  quality 
possible  considering  the  condition  and  legibility 
of  the  original  copy  and  in  keeping  with  the 
filming  contract  specifications. 


Original  copies  in  printed  paper  coven  are  filmed 
beginning  with  the  front  cover  and  ending  on 
the  last  page  with  a  printed  or  illustrated  impre«- 
sion,  or  the  back  cover  when  aopropriate.  All 
other  original  copies  are  filmed  beginning  on  the 
first  page  with  a  printed  or  illustrated  impres- 
sion, and  ending  on  the  last  page  with  a  printed 
or  illustrated  impression. 


The  last  recorded  frame  on  each  microfiche 
shall  contain  the  symbol  — ^  (meaning  "CON- 
TINUED"), or  the  symbol  V  (meaning  "END"), 
whichever  applies. 

Maps,  plates,  charts,  etc.,  may  be  filmed  at 
different  reduction  ratios.  Those  too  large  to  be 
entirely  included  in  one  exposure  are  filmed 
beginning  in  the  upper  left  hand  corner,  left  to 
right  and  top  to  bottom,  as  many  frames  as 
required.  The  following  diagrams  illustrate  the 
method: 


Les  images  suivantes  ont  «t*  reproduites  avec  le 
plus  grand  soin.  compte  tenu  de  la  condition  et 
de  la  nenet*  de  I'exemplaire  film*,  et  en 
conformity  avec  les  conditions  du  contrat  de 
filmage. 

Les  exempiaires  origjnaux  dont  U  couverture  en 
papier  est  imprim*e  sont  fllmis  en  commencant 
par  le  premier  plat  et  en  terminant  soit  par  la 
derniire  page  qui  comporte  une  empreinte 
d'impression  ou  d'illustration.  soit  par  le  second 
plat,  selon  le  cas.  Tous  les  autres  exempiaires 
originaux  sont  film*s  en  commen^ant  par  la 
premiAre  page  qui  comporte  une  empreinte 
d'impression  ou  d'illustration  et  en  terminant  par 
la  derniAre  page  qui  comporte  une  telle 
empreinte. 

Un  des  symboles  suivants  apparaitra  sur  la 
derniire  image  de  chaque  microfiche,  selon  le 
cas:  le  symbole  — ♦•  signifio  "A  SUIVRE ",  le 
symbole  V  signifie   "FIN". 

Les  cartes,  planches,  tableaux,  etc..  peuvent  etre 
film*s  i  des  taux  de  reduction  diff^rents. 
Lorsque  le  document  est  trop  grand  pour  etre 
reproduit  en  un  seul  clichi,  il  est  film*  A  partir 
de  Tangle  sup*rieur  gauche,  de  gauche  i  droite. 
et  de  haut  en  bas,  en  prenant  le  nombre 
d'images  nicessaire.  Les  diagrammos  suivants 
illustrent  la  m^thode. 


1 

2 

3 

1 

2 

3 

4 

5 

6 

MICROCOPY    RESOIUTION    TEST    CHART 

ANSI  end   ISO  TEST  CHART   No    ? 


1.0 


I.I 


il|M    {III  2-5 


132 


m 


[2.2 
2.0 

1.8 


1.25 


1.4 


1.6 


^     APPLIED   IM^GE     Inc 


THE  TAXATION   OF 
PUBLIC  SERVICE  CORI'ORATIONS 


BV 


PKOKESSOR   ADAM    SIIOKTT 

gt-EKNS    f.VIVKKSirv,    KIM, -TON-.    i.VT.:     MKMHHR    OK    TAX 
»l>MMI>SION.    I'H..VI.V(  K    OK    oSTAIilO.    <  ANADA 


Kkprintkh  krom  the  Apdrkssks  and  Proi  frdings  of  the 

NArioNAI    CONKKHKN.   K    mN    StATK    AM.    Lo.   Al.  TAXATION 
IIKI.I.    Al     (  .il.lMHI<.    Oliro,    Nov.     lJ-1.",,     1!((I7 


NATIONAL    TAX    ASSOCIATION 

COLUMBUS 


--;tt-"   -r-    r--Tt -"•=    - 


-■.=-:fc.-nj  •*■ 


Illl'l 

Jil 


ii 


ilL. 


PROVINCE    OF    MANITOBA 

MANITOBA 

CLASSIFICATION 

- HIlja.T^ 


KC-b-7. 


UBRART 

Tin:  TAX ATiox  or 
ri  lujc  sKijvin:  coiiPoiiATioxs 


BY 


I'|{()FI>S()|;    AK       '    SIloKlI' 

<jl    I  ►N»     I    NM  I  H-l  n.     klM.-  ..    CIS  I     :      Ml  Mill  li    UK     I  \X 

■  I'M  \ii>M(i\.   ii:ci\i\i       HI    ii\iAl;n(.   <  waha 


l!iii:ivrn>   H!c>M    iiik    \|.|ii;i--i-    \m>   J'ii.k  h  i>i vc-  .>i     iiii.; 

N  \  llciv  \|    (   I.NH-KIM    I     c,\    M   X  I  I      AMI    I .( il   A  I      I    \  \  A  I  H  i\ 
IIKl.n    Al     (ullMlll^,    OlIJii,     N((\.     ll'-l.'i.     IIMI'; 


NATIONAI,    TAX    ASS()(  IATI()X 
<■nI.l■.M  l;rs 


I'loNS 

llV     l'l:>lKK-»nH      \|>\M     MliillTT 

(Ju'.Mi-    I'iii\    r-ilv,    Kiiiir-luti.   <tiil..     Mrriilxi-    i.f    Tax    ('(iiiiiiii.->inii, 
l'l(i\  lliri'   III'   (  tularin,    ( 'aliaila 


'I'lir.  iinliiiarx-  -v-tcin  n\  Im-al  taxal'mn.  I>nlli  a--  tn  the  ticcils 
li,  „■  -u|i|.iicil  tnilii  ihi'  l.iM'--  ((illcctcil.  ami  a-  In  the  l>a~i> 
llfiDll  wdlrh  iIm'  Ic\  ic^  arc  lliaili-  Upull  lllC  cnlll  ril '111  or-,  i-  llic 
natural  ami  iili\inu~  oulfniuc  (if  :■  cdlH  rcic  >ituatiiiii  ilfail  wilii 
ill  J  jiiai-tii-al  lnallll''r.  'i'lic  -illlatioli  i-  (Hie  ill  uliirli  tlic  iinli- 
iiai\  riii/cn  lia-  !ii~  [n'lniaiii'iil  rc-iilriirc  in  (iiic  Incaliiy,  where 
aUii  nrai-lii-allv  all  (if  lii-  prii|iel'l  v  i-  Idcatdl  (ir  iii\c-te(l.  H 
imlividiial--  -ell  lUdiluce  aiir(ia(l  or  iiii|Kirt  >upplie-  iVoiii  uitli- 
i,i|i.  ihr  e\p(irl-  ami  illip(ill~  noriliallN'  halalire  eadi  (ither  ill 
,'iiii.a'ele  uiKiiN  uiiliin  a  liiiiilel  time,  'i'lie  puMic  services 
ici|iiire(l  \<y  iIn'  inlialiitaiil-.  In  fuitii-li  wliidi  i-  l!n'  (icca-ioii 
fill  I  he  le\\iiii:  (if  taxe-,  are  i-eijUiiiMl  liv  all  the  (■(iiiiiiiuiiit  y, 
iii(i  are  directls  or  indirectly  in  i  he  interc-i  of  the  citi/eiis  m 
f  III-  proportioii  to  their  wealth.  SuW-tatitial  ju-tice  i.-  iiKiiiitaiiied 
rlicrefdi-c  liy  Ireatiii'j;  all  pnipcily  owner-  alike. 

ill  iii.inv  rur.d  >ecti(iti-  tn-day,  and  for  the  majority  of  the 
.■iti/cn^  in  our  town-  am!  viilaire-,  ihi-  prim  iple  may  .-till  apj'ly. 
One  ncc(l  not  touch  upon  all  tlie  intermeiliate  .^tai^e-  in  the  de- 
velopment of  property  rii^ht-.  in  the  formiim  of  corporation-, 
the  Teat  ion  of  -hare  capital  and  of  niortiiaiie  hond-.  with  the 
I'l.'ilitie-  for  their  exchaic^e.  and  the  coii,-(( [Ueiit  wide  diffu-ion 
and  frc(|Ueiit  -liifliiii:  of  owner-hip.  l>ut  it  i-  iplite  ohvioii.- 
lii.it  in  dealim:  wiih  -iich  pulilic  -ervice  corporations  a.-  rail- 
wi\-.  -team  or  elect ric.  teleiiraph,  telephone  and  e.xpre.ss  coin- 
pame-,  we  haxc  to  deal  with  forms  of  pidiierty  and  plwise.s  of 
owner-hip  which  have  little  of  the  old  relation-hip  to  locality, 
a-  M"_'afds  the  po— e— ion  of  properly,  and  t'V(>ii  lo.s.s  relation 
to  'lie  need  for  pulilic  service,  which  fufiiislies,  on  llie  one  hand, 


Tin;    rwATloN   or    IMUI.K     SLKVK  I,    <  (  HU'i 'U  \  I  l< 'NS     (iJ.T 


tlic  lociil  basis  for  f;i\ali<)ii.  ami  on  the  other,  ihi-  local   iirc<l  for 
the  services  which  the  ta\e>  jtrociin'.     If,  then,  the  oMer  >y>tein 
,,l"   ;i»M'»iiii:   ami    levviim    ta\e-   and    of   expeinlin^    I  hem    was 
ju-liheil  nil  the  irrouinl  of  ilealiiii;  uitli  an  actual  ,-iliialion  in  a 
pracliral   inaiiner.  have  we  nm   tjcio.l  rea-oii  for  a^kinii  that   :i 
totally    new   >ituation    in    I  he»e   re-l>ects   >houM    ,ii-o   he   dealt 
wilh   in  a   praciical   inaiine,' '.'      It    i-   no  ciiiici-in  of  either  the 
jii-tice  «ir  adei|Uacy  of  the  older  -y-tciii,   uhen  appiied   to  thi; 
same  conditions  out  of  which  it  aio>e.  to  ^ay  th.it   it  i>  neither 
ju-t  nor  adeipiate  when  applied  to  a  tol.illy  new  >tate  of  alVairs 
wiiich,  without  ili-placinu'  liie  older  coiiclii  ions,  ha-^  heeii  -iipcr- 
adiled    to  them.      The  oiiji  ction.  therefore,  to   new   dei>artiiies 
in  taxation  wiiich  result   from  the  chaii^'im:  >hapes  and  condi- 
tion- of  property  and  tlie  diffusion  of  it-  ownerdiip  i-  not  .■om- 
plimenlarv  to  lho>e  who  devi-ed  tlu-  older  forms  of  taxation  to 
■which  the  ohjectors  commonly  ailhere;    for  all  that   i-  a-kel  is 
that   we  .-hould  deal  with  the  new  conditions  in  the  -ame  -pirit 
a>  thev  dealt  with  the  older  one-;    in  other  word-,  in  a  practical 
maimer  in  the  lifiht  of  e\i-tiii;i  need-. 

Wli.at.  then,  are  the  primary  fact-  with  reference  to  |(ul>lii- 
service  corporation-,  from  the  jioint  of  view  of  tiieir  p(>— ii'le 
taxation'.'  Practically  .all  of  the-e  corporations  have  to  do  witli 
transportation  or  transmission.  Financial  corporation-,  .-uch 
as  iiaiik-,  trust  companies  and  insurance  compmies.  are  dealt, 
with  elx'where  in  thi-  pro^^ram.  TakiiiL'  the  most  t>|iical  and 
important  of  the  transportation  services,  the  tireat  railway 
(•omi>anies.  wliat  are  their  eh  iracteri>tics?  In  a  normal 
ex.ample  we  have  a  corporation  ttie  mcmhers  of  which  —  the 
stockholders  —  are,  or  may  he.  a  chaii.ninj;  body  of  individuals 
or  other  corporations.  Hut  even  these  members  do  not  coii- 
(riimte  all  n-  even  a  majority  of  the  capital  whi.h  the  corpora- 
tion has  invested;  for  modern  railroads  are  financed  chiefly 
by  means  of  borrowed  capital,  for  which  the  projierty  of  the 
corporation,  either  as  a  whole,  or.  more  commonly,  in  specific 
.sections  of  it.  is  formally  pledged  by  mortiia.iie.  The  holders 
of  these  mortiiaire  bonds,  like  the  holders  of  tlie  >hares,  are  or 
mav  be  a  chaiijiinii  body  of  imlividuals  or  other  corporation.-, 
such  as  banks  and  in-urance  companies.  I'tider  modern  sys- 
tems of  finance  the  capital  which  is  contributed  to  a  railw.iy 


<•,.»} 


STATi:    \M»    l.<"\l     I  \\  MI'»N 


i,v  -miiliir  puLlir  s,.,vi.-..  .criM.riilK.ii  .lillVr-.  m-  l..'t\\<-cii  l-nii-U 

;,n,l    -lurk-,    .hwllv    Ml    I I    .'f   -<-(Uiii\.     Thuiii:!!    tin-   Ixiii.l- 

hu\>lr\-  hav.'  MO  vuiir  in  llir  liiana-<'rm'lil  ..f  .li.-  .  iiipurat  i-.n. 
vrt.  ill  arlual  J-lart  l.r,  tin-  inajuiilv  nf  thi'  uplinar\  -loik- 
Ih.M.t-    liavc    ju-t    a-    \U\\r    \"U<-    HI    |in|lrv    nr   aiilllllli-l  lal  ml,. 

llMiM   llif   I t    nf   \ir\s    (it    la\alinii   liuii.l'  alul  >lnrk-  inUM    Im- 

lakni  Inii.-llirr  a-  ir|.n-riil  nm  cal'ilal  iiivi-tnl  in  llir  .m  |..,i  at«' 
«'lltcr|.iiH.  Tiiat  laliirr  of  Ifiritniv.  lu.u.'V T  wi.lf  it  Mia'  I.e. 
iri.rc-.nliiiU  al  niirr  llir  iv-imi  .  .f  in\  .-I  iiirhl  and  nf  ic\  .•iiuc. 
nill-t  III.  111.-  n-inll  <>\  taS.llinll  all. I  nnl  III.'  pL.iCnf  nM.lflHC 
nf    th.'    hnl.lcr  nf    ill.'  -cUlil  i.'~.       Mnl.'nx.T.   ill.'  taS.'-  -.linllM   I..' 

l,.si,.,|    ,,|inn    th.'    ,niiiniati..ii<    an. I    imt    uprni    tli.'    in(li\i.lual 

M'ClllilN'    linlil.'l-. 

In  what   tniiii,  then.  .In.'-  tli.'  i-mpi'it  v  nf  -udi  a  .m  iMiiat  imi 
cvi-t?     'rakiii-  il>  .liif'f  t.'riii>.  it   i-  n'l.r.'-.'iH.'.l  I'.v  hmi:  -t  iip-< 
,,f  iaiMl.  .'sp.iiuh"!  li.'iv  :i'i.l  llu'iv  fnr  (h.-  In.Miinii  .,f  -wiicli.'-^. 
.-t,-,tinii  \n(l-,  .itv   i.Tiuinai-,  .'t.'.     On  ihi-  hnni  i-  ...n-ti  lut.'.l 
til.'  rna.|i..'.i  witii   il>  .ultiii--,  .'iiilKinkni.'iit-.  \ia.liirt-,  hri.l-K's 
:,n.l  tunn.'l-.  and  tlw-.'  .any  I  h.-  tia.k  with  it-  ti.'-.  r.iii-.  >uitrh- 
in-  aii.l  -i'.:nal  >y>l.'ni>.  .'t.'.     Thrw  arc  al-n  th.'  -tatinii  l.iiihl- 
lU'A-^.   ficiiiht    >h.Mis.    .•i.'vat..i>.    nia.hin.'   -Imp-,    rnuii.l    ImuM'-, 
.•naiinn    statinns    ainl     th.'    .n-liy    .itv    l.Tininal-    ainl    .illi.'.'s. 
Th.'ii  lli.T."  i>  th.'  va-t  amount  nf  mlliii;:  >to.k  nf  all  kin.l>  aii.l 
il,  .'.luipnicnt.     Tn   inaiiitaiii  an.l  ..|..'ral.'  this  -r.'at    ainiy  ..f 
prnpcitv    th.T.'    i~   .'iiiploy.Ml   an   army   nf   ni.'ii.   fmiii   -.'lu'ial 
Mianaii.Ts  tn  poit.'i-.  involvini:  a  heavy  payroll.      1  h'av.'  nut  nt 
.„.,.,„„. t   all  th.'  M'lnmlary  .'iitiTprix's  in  whi.h  a  railma.l  cniii- 
panv  iiiav  lu'  inv..lv.'il.  in  the  way  ..f  hott'ls.  park>.  iiiin.'-.  tinil..M' 
limit-,  mills,  l.'iii.ls,  .'t,'..  as  li.'iiiii  "ot   -tri.tly  .-M'lilial  tn  the 
fuiiftinii-  nf  a  railw.'iy  as  a  j.uMic  -crx  ir.'  rorpnr.itinii. 

Here.  then,  i-  a  \  ast  nr,L'ani/.al  ioii  eNteiulini:  .iver  scores  .if 
taxing  units,  -tat.-  ami  municipal,  an.l  -erviiri  maiiv  iii.ire 
whi.'h  it  may  not  a.-lually  .'liter,  luit  from  which  it  ii.'vcn  h.'l.'ss 
(lerivs  revenue.  4"lie  extent  .if  lc;.;tnry  .-nv.'re.l  and  tlio 
capita  exp.'inlitur.'  inv.ilvcl  in  aiiv  irixi'ii  t;i\ini:  miit  has 
fr.'.|Ue  itlv  litlli'  nr  no  relation  tn  th.-  amount  nf -er\  ice  ren.l.'icd 
within  that  ai'ca.  the  .-imnunt  of  r.'vcmi.-  .I.'rixcd  from  it  or 
the  lien.'tit  obtain. '.1  l.y  the  cnriioraiinii  from  tlie  ex|ien.liture 
(if  the  taxes.     Consider,  for  in-tan. c.   the  .'.luity  uf  taxl.i-  a 


TIIK    I\\M1"N    «•'     I'l  lU.K    SI.KVK  K    mul't  .11  \  1 1< 'NS     (IJa 

r.iihvuv  .uiporalinii.  uithin  ii  jrivcii  t..\vn-l.i|..  or.  ilu-  l.i.-i.s 
„f  ii  v.TV  n.r.lly  l.ii.|.4«'  Hii.l  M'vcnil  n.'.tly  <iitiiiiy:>  at,.!  .-lu- 
l.at.kiii.M.I.  whirh  may  liupiMMi  tn  l-  lu.atcl  ■.villiih  it.  whiU' 
:ui  iiniH.aulflv  ailj..iiiiiin  tnsvnshi|.,  llimuuh  vvlu.  Ii  ihc  n.ilsvi.v 
,|i.l  „„,  happen  t..  pa-«>.  n.ilM  liul  ^h:.^•  in  the  laxaliuh,  tlmifj. 

p,.|li;.ps   itiiliiitiMt:   a    inii.h    nival. t   ainouni    >A    Iratlir    an. I 

lu.ii.i'uf  ••ainin!.'-...uit  nf  ulii.li  ta\.-s  inii.-t  Im-  I'ai.l.  ()i>viuM-ly. 
Mirl.  a  .nrpuiati.m  >tan.U  r.'lat.'.l  t..  tl..'  wIh-Ic  prnMnn  uf  l..,,,l 
r.-vcnu.'  aii.l  .Apcndiiurc,  >Iatc  ur  iniini.ipal.  nn  a  totally 
.litT.Mvnt  l.a-l>  fruMi  tl.at  of  privat.-  property  and  its  n-i.l.nt 
oxMHTs.  Uiit  wo  may  U-avc  a>i.l.'  for  tlu-  prcM-nl  tin-  .im-t.on 
us  to  tlu-  prop<'i-  jiirisdi.lion  uiulcr  wlu.l.  tl.o  taxation  of  llic>e 
,.nrp..ratinns  >!ioul.l  ••..m.-.  ami  the  i.n.per  ^y.tem  for  the 
.liMiil.ut.on  of  the  taxes  levied  upon  th.'in.  A  primary  .pies- 
tion  for  .■on>i.lerati..n  is  the  primii.le  or  princii.les  ui...n  whi.h 
the  value  of  a  public  service  corporation  may  l.o  (ietermmeil 
f  .r  p\iri)oses  of  taxation. 

Can  we  aiM'ly  t"  'I"'  j'n.pnMy  of  l.ul'li'-  M-rvico  corporations 
the   i.rimii)les   which   are  commonly   employo.l   in   the  a>.-c-s- 
iMent  of  privat.'  an.l  business  properties?     !n  the  case  of  onli- 
narv  proi.ertv  the  two  mo>t  pertinent  Mueslions  are.  what  did 
it  co^t  and  what  will  it   sell  for?     In  ev.>ry  ca>e.  however,  the 
,p,.-Mi..n.  what    will    it    sell   for".'   is   of   much    jircater    practical 
i,„por,ance    than    the   que.sti.m.    what    <lid    it    co>t  ?      In    <.ther 
words,  the  n.arket  value,  where  it  is  ascertainable,  is  the  value 
which   ultimatelv   .letermines   what    anythiiiji   is   worth.     Hut. 
unfortunatelv.  we  cannot  ai-i-ly  this  test  of  value  ..r  wortli  to 
public  .service  corpurati.)ns.     There  is  no  market  f(.r  railn.a.ls, 
'  tclep-aph.  tol<M)hon..  or  express  systems.     It  is  true  that   they 
,l„  occasionallv  chan-i-   their  manatiements,  an.l,   where   their 
shares  are  a.'tivelv   .lealt    in.   they   are  .-onstantly   varying  m 
ownership.      Hut    these  chan-cs  .1..  m.t  orvuv  .)n  the  baMs  of 
the  market   value  of  e.a.-h  system  as  a  whole.     The  .■hai.fie  in 
nianasiement    ..r   .'..ntrol   is  etTecte.l   either   thr..u-h   a    partial 
financial    break.lown    an.l    ihe    .'on.se.iuent    app..mtment    of   a 
re.'eiver.  or  thr..u-h  a  .•hanire  in  the  c.ntrol  of  the  majority 
of  the  votimr  l)..wer  of  the  st...'k.  either  by  a  .•..alitmn  of  inter- 
ests ai.led.  if  ne.-essarv,  bv  the  pur.'hase  ..f  a  certain  number  ..f 
shares,  or  by  any  of  tl.e  varied  forms  of  agreement  which  have 
'2  s 


G2n 


STATi:    AN!)    LOCAL   TAXATION 


hrcii  (Icvi-iMl  t(.  secure  coiitn)!  without  tlie  necessity  for  pur- 
c!i:iMiii;  stoi-k.  I'.ul  cNcii  wliere  control  i-  secured  throuiiii  tlio 
purcliase  of  >lock,  tlie  actual  otulay  represents  hut  a  small 
p.iriion  of  ilie  capital  value  of  the  system  as  a  whole,  inasmuch 
as  it  takes  no  accouiU  of  the  ca|.ilal  repre.-eiiteil  hy  homls. 
It  is  evident  then  that  theic  i>  no  opportunity  for  determ.iun.m 
tlie  real  worth  or  assi-sahle  value  of  puMic  service  corporations 
hy  the  usual  standards  of  market  valae  for  complete  systems. 
Still  less  is  it  po~>il)le  to  determine  in  this  way  the  \alue  of  any 
aihitrary  sections  of  such  -yMems  which  happen  to  lie  within 
the  area  of  this  or  that  taxinii  unit,  he  it  state,  proviiu'c  or 
minor  niuniciinility.  The  i)ortion  of  a  railway  or  t.-h-raiih 
system  wliich  i)a-ses  through  a  i:iven  municipality,  or  even  a 
State  or  province,  almost  invariahly  derives  a  lar-e  proportion 
of  its  value,  and  sometimes  almost  the  whole  of  it.  from  its 
comiections  heyond  that  area,  or  from  it>  hein^  hut  a  link  \n 
a  systeni  whose  chief  revenue  is  derive.l  fn.m  throu-h  trallic 
or  transmission. 

Neither  is  cost  of  prodm'tioi\  a  fair  test  of  value.  Mar'  I 
value  is  the  test  which  determines  whether,  in  view  of  its  cost, 
production  should  or  should  not  he  undertaken.  It  is.  indeed, 
seldom  proi)osed  as  a  hasis  of  valuation  for  puhllc  service  lor- 
porath)ns  other  than  railways,  and  in  their  case  it  is  prop,  d 
only  hecavrse  of  the  lar^v  jiroportioii  of  tanjiiiile  property 
reiiuired  in  their  construction  and  operation.  Hut  e\en  tho 
mo-t  faithful  advocates  of  cost  of  production,  as  a  hasis  for 
as-e^sment.  admit  that  it  may  exceed  or  fall  short  of  the  full 
value  of  a  system  as  a  whole.  How  tlu-n  is  this  variation  from 
ii-t  of  production  to  he  determined?  The  usual  answer  is, 
as  liiven  in  Micliijran.  hy  ascertaining^  the  licneral  earning 
power  of  the  system,  fnun  which  is  deduced  the  net  earnings, 
which  are  then  capitalized  at  some  selected  i)ercentage.  and 
this,  it  is  claimed,  will  give  the  true  capital  value  of  the  system. 
If  now  we  deduct   the  cost   of  production  from  this  true  value, 

where  it  e\c Is  cost  of  production,  we  sh.-dl  find  what  amount 

must  he  <i(l<l<(l  In  the  cost  of  prodm'tion  in  ord<M-  to  liive  the  true 
value,  which,  however,  was  just  the  point  from  which  we 
M.iited.  r.v  a  complementary  iirocess.  where  cost  of  produc- 
tion exceed-  true   value,  we  shall  .liscover  what   must  he  de- 


Tin;   TAXATION   OF   PLBLR    SHHVICE   .H.UI'.  .UATH'Ns     (VJ? 

.lurtc.l  fn.n:  .•.,.-t  ..f  pnulurtini,  i..  ..nlor  to  -H  hack  to  tnu-  value 
„„,.f  luorc.  Hut  win-  we  >lu.ul.l  UM.lntak..  tlio  onorinous  out- 
lay it.  tin,.,  an.l  .uoi.oy  ..(>a.>sary  to  ainvc  at  n-M  ot  pnuhu- 
j,;,,,  ,,,,,,„.  ;.,•„.,■  all,  it  is  .•apitali«-l  earni..;i  im.w.t  whi.'h  pv.-.s 
u.  the  true  valu..  is  l.v  no  nu-ans  obvious  ,.m  ti...  Muta.r  ot  the 
proposition  at  least.  When  wo  penetrate  helow  the  .urtarr. 
,1,0  expla>.ation  is  .-onunonly  foun,!  either  in  the  .leMie  to  ioive 
,1k>  {..Hs  ,o  eonfonn  to  >on,e  preeonceive.l  th..>ry.  or  m  the 
neee-itv,  fan.'i.-l  or  real,  of  .•onforn.in-  to  so.ne  popular  preju- 
ai..e,e.Hl..Hliea  it  nmy  i.e  in  a  state  ..on>titut.on,  >ueh  as  that 
all  corporate  property  >halll.e  value.l  a.ul  taxe,l  on  the  san.e 

basis  as  onlinarv  private  property. 

Hut    it  nmv  besahl.  Nvhih-  it  is  true  that  i.tiblie  service  corpora- 

,y>teins,    yet    t  h(> 
have    market 


tion-    have    no    market    value    a>    cofTiplele 
.(■rurities    which    make    up    their    total    <-apital 

av  we  not  arrive  at  their 


line    a 
values,  an.l  by  aihlini:  these  toii.'ther  ni: 


total  values  as  corporations 


'1'^ 


rtain  (extent    the 


„f    these   .securilio    represent    the    capitalized    mcom. 

col 

rei 


•  aliie 
if    Ih 


corporations,   ami  tlu.y   are   therefore   a   much   mon-  accurate 


cprosentation  of  what  a  corporation  is  really  worth  than  any 
a,„.,„pts   to  e>timate   physical   pro,.ertv   or   fnimhise   va  ues. 
lUu  carniim  power  is  by  no  means  the  only  ..onM-leral  ion  affect - 
i„..  the  values  of  stocks  an.l  b.m.ls.  an.l  parth'ularly  the  fonn.-r. 
The  values  of  stocks,  whether  representing:  bona  Juir  mvotment, 
p,.Hn..ters-  inteivsts,  or  merely  an  aqueous  b.mus  .listr.laUe.l  t., 
i,.„„lh.a.lers  or  ..tl.ers,  may  be  manipulate.!  for  purely  spe,.u  a- 
tivo  purp..ses  ..ver  a  c.n.i.lerable  perio.l  of  .hue.  until  u.iloa.le.l 
up..n  an  ea^er  but   unwary  publi...     Certain   .s>ues  of  bomls, 
^,;,  „„.„„,,,  ,,,,,,,1.  an.l  even  some  of  the  be>t  preferem.-  stock, 
are   s.,   ..ompletelv   hel.l   by    private   invest..rs.   or   by   various 
,„,,,.,a....ns.  su..h  as  insuran.-e  ompani.^s.  that  t.,r  years  t  u-y 
mav  n..v..r  app..ar  up.m  the  market.      Kven  where  stray    ot. 
1  ,i„,e  to  time,  they  cann.a  be  saul  t..  establish 


.1.1, 


Ir.iin 


anv  r..,ular  mark.-t  values  for  these  se.-urit.es.  A^am,  the 
adoption,  in  varvin.  .lejzrees,  ..f  the  p..li.'V  ..f  emph-ymir  <'arn,n^> 
f.,r  lapital  expen.liture  will  .-..rre.p.m.lin.ly  afle..  divi.len.l. 
over  Uvj:  peri.Hls,  ami  ,...nse,,uentlv  the  value  of  the  sto.O.. 
There  is  further,  a  verv  .■..mm.,n  .litli.'ultv  .■.>nne,.te.l  with  the 
attempt   to  tax  b..mls  in  particular.     While  there  is  im  .l.mb. 


(L'S 


SIATK    AM)    l.dCAI.    TAX  AT  ION 


tli:it  they  rci)n'>ciu  ;i  larirc  proixntiDti  nf  tlic  capital  of  public 
MTvii'C  coriKH'atioiis  aiiiotii;  otlicr.-.  >till  in  |M)iiit  uf  law  thoy 
rcprest'tit  no  special  intercut  in  the  coipoiatiitn-.  imt  arc  simply 
>('ciiritios  for  money  loaiicil  mi  tlic  pl('(lu;('  of  the  corporato 
piiipcrty.  Hence,  wiiere  they  are  lieid  l)y  foreign  investors 
thev  are  usually  not  HaMe  to  taxation.  We  iiuist  conclu-le 
tiieii  that  tlie  attempt  to  value  corpctrations  as  a  whole  throimh 
a  summation  of  their  stock  and  i)on<l  values  will  i)ro(luce 
very  uiiceitain  results,  ami  with  much  ine<iuality  as  between 
cdi-porat  ions. 

it  would  api)ear  to  lie  more  reasonalile.  therefore,  to  employ 
earninii   power  openly  and  directly  as  the  basis  for  corporato 
taxation.     While  private  property  is  held  for  (piite  a  variety 
of  rca.sons,  in  addition  to  finainMal  i>rofit,  i)ractically  the  sole 
reason  for  the  existence  of  economic  corporations  is  jiecuniary 
irain.     Therefore,    tluMr   value    to   their   owners   ami   oix'rators, 
a|)art    from    speculative  maiu|nil:ition  and    tr.idinn    in    stocks, 
is  represented  by  their  earnini:  power.      Hence,  it  may  be  laid 
ddwn  as  a  broad  prim'ii)le  that  the  earnint;  power  of  a  corpora- 
tion   represents   its   true    value.     Can    that    earniii<:    power   or 
income  be  directly   determined?     In   the   case  of   private  in- 
dividuals,   personal    income    is    admittedly    one    of    the    most 
dillicult  facts  to  discover.    With  the  ever  increasing:  ran^e  and 
varietv  of  investments  and  sources  of  ini  ome,  it  is  iiu'reasinijly 
dillicult   to  axertain.  without   the  most   incpii-itorial  methods, 
what    may   be   the   private   income  of   most    citizens,      iiut ,   in 
virtue  of  the  very  nature  of  economic  corporations,  and  of  the 
character  of  the  ri.L'hts  and  oblifxations   vested   in   the  share- 
holders and  oflicers.  it  is  necessary  that  all  the  business  transac- 
tions, includimr  the  income  and  expi-nditure.  should  be  matters 
of  definite  record.     It   i-  im])ossible  for  a  corporation  of  any 
magnitude  or  standinsi  to  dispense  with  an  accurate  system  of 
botikkeepinu:  which   will  record  its  entire  income  and  outlay. 
There  mav,   indeed,   be  much   variety   in  the  classification  or 
iletinitioii  of  the  items  of  income  and  expenditiu'c,  which  will 
lead   to   obscurity   and   variation   in   the  distinctions   between 
<;ross    and    net     income    or    between    o|)eralim!;   exp(>n-es    and 
eajiital  expenditure,  but    there  is  no  dilliculty  in    arrivinu:  at 
what  is  sross  income  ami  gros.>  expenditure.     It  is  true  that 


''.,<^T"  •', 


^^f 


Tin;   TAXAlKt.N"    <»1-    ITIU.K    SKKVICK   <  ( tHI't  •!{  \l  I<  )NS     (;2(» 


certain  sums,  amountinji,  it   may  he.  to  cutisidcralile  items  in 
the  a.<i<:re;:ate,   may   come  temporarily  into   the  possession   of 
the>e  corporations  and  l)e  paid  out  airain  witliout  representin<: 
either  income  or  exiM>nditure.     Tims  one   pulilic  service  cor- 
j)(>rati()n  may  act  merely  as  anient  for  another,  as  in  accei)tin<r 
nionevs  for  services  to  lie  remlered  l)y  one  or  more  companies 
lieyond  its  own.     But  these  sums  can  1)(>  easily  ascertained  as 
they  are  all  matters  of  record  in  the  hooks  of  the  corpoT'ations, 
Where  net  income  can  he  ascertained  it  is  in  many  res|M'c1s 
the   hest    hasis   for   taxation.     Net    income,    however,   is   very 
(liflicult  to  determine  from  year  to  year  with  suliicient  accuracy 
for  purjjoses  of  taxation.     landless  discussion  and  disput(>  is 
certain  to  arise,  and  many  ojtport unities  for  evasion  are  ])re- 
.sented    in    coiuiection  with    attempts  to  define  what    may  or 
may  not  he  letritimately  deducted  from  j:ross  income  in  ordt-r 
to  arrive  at  true  net  income.     No  douht  if  a  uniform  system  of 
accounting:  can  he  estahlished  for  puhlic  service  cor])orations, 
toward  the  accomplishment  of  which  the  statistical  department 
of   the  Interstate    Commerce  Commission  is  makintr   laudahle 
etTorts.  a  fair  apjiroximation  to  net  income  would  he  pos.~ihle. 
Althoufih  it  is  demount raiily  ahsurd  to  in>ist  that  corjxirations 
must  neces.sarily  he  taxed  on  the  same  hasis  as  private  individ- 
uals, it  is  not  unreasonai)le  to  maintain  that  corporations  should 
eontrihute   their  eipiilahle   share   to  the   jjuhlic    revenue.     If, 
therefore,  the  jirivate  individual  does  not  escai)e  taxation  on 
])roperty  on  which  he  may  derive  no  net  revenue,  neither  can 
the  corporation  which  has  no  net  revenue  escai)e  taxation  any 
more  than  it  can  avoid  payiiifi  customs  duties  on  its  im])orts. 
And  what  ai^itlies  where  there  is  no  net  income  will  apply  with 
!nuch  the  same  force   where  there  is  ver\-   little  net    income. 
Kven,  therefore,  if  we  could  determine  with  jierfect   accuracy 
what  the  net  revenue  of  a  corporation  was  it  niisjlit  not  he  an 
admissihle  hasis  for  taxation,  or  perhaps,  more  accurately,  for 
the  escapin.ii  of  taxation. 

It  has  heen  jjroposed  as  a  sort  of  compromise  lietween  net 
ami  ^ross  income,  as  a  hasis  of  taxation,  that  jiuhlic  service 
corporations  should  he  taxed  on  the  hasis  of  the  comhined 
dividends  ])aid  on  stock  antl  interest  paid  on  honds.  it  lieiiiff 
assumed  that   these  returns  represent   hetween  them  what   i?i 


(i:;u 


;r.\ri;  and  local  taxation' 


Iiractically  tlic  net    incnuic  of  a  corporation.     It   may  lie  oh- 
s(r\('(l.  Iiowcxcr,  tliat   if  no  div  iilcmls  arc  paid  the  iiitcrot  on 
l)nnil>  iiia\'  not  rcprocnt  a n\'  corporate  income,  l)Ut ,  to  a  certain 
extent  at   lea-t.  an  element  of  capital  exiienditure,  undertaken, 
it   ma\    lie.  for  a  numlier  of  years,  to  prevent   the  corp<irat ion 
from  pa--ini;'  out   of  i  h<'    hand--   of   the   stockholders,  who   may 
ha\c  fait  h  in  it  ^  ultimate  .-uci-ess.      If,  on  t  h      )ther  haiul,  it  do(S 
jiav  a  moderate  dividend,  ihi-.  in  aildition   'o  the  interest    on 
tile  lionds,  may  not  rejiri'sent  its  full  net  income,  as  a  larucr  or 
smaller  portion  of  it   may  !)e  diNcrted  to  oihe;     Mirposes,  such, 
for  in-tance,  .a-  an  inxcstment  in  the  properly  a  •  a  whole,  or  in 
sniiie   collateral   or  suh-idiary  enterprise,   having  tax   relation- 
ship- (piite  different ,  it  may  he.  from  tho.se of  the  i)arent  corpora- 
tion.     Here    the    ar,<:umein    has    heen    advanced    that    income 
which   escapes  taxation   by   hein.ii  reinvested   instead   of  hein^ 
paid  in  divid<'nds,  hy  iiu'reasiim  the  value  of  the  property  will, 
in  turn,  lead  to  increased  dividends,  and  thus  eventually  replace 
the  taxes  evaded.     This  view  of  the  matter,  however,  overlooks 
.several  important   facts.      In  the  first    i)lace,  tlu>  taxes  on  the 
capitalized   income   are   undoubtedly   lost    for  a   more   or   less 
leimthened   ])eriod.     When  they  reai)i)ear  t h(>y  an>  not    taxed 
in  the  airiireirate.  as  they  should  ha\('  been,  but  oidy  on  the 
extra  dividends  which  may  arise  from  them.     Thus,  supi)ose 
the  net   prolits  which  are  recajtitali/tMl  should  amount  in  five 
years  to81,00t),()(HI,  and  sujjpose  the  tax  rate  which  was  esca[)ed 
to  be  '2\  jier  cent,  then  the  taxes  lost  in  the  five  years  would 
amount  to  at  least  §■_'.'),('()().     Suppo.se  the  subsetpient  dividends 
jiaid  on  this  new  invest  meiU  of  >*],()( )(),()()()  to  be  ti  per  cent,  then 
the  dividend  on  the  ])roportion  of  the  taxes  escajMul   will  bo 
SL')(Ht,  and   the  taxes  on  that    at    '_'\   per  cent   will  be  S^m.oO 
amuially.      Btit  tliis  will  obviously  nMpiire  a  very  lonii'  period 
to  make  up  for  tiie  ori.iiinal  evasion  of  S-5, ()()()  in  taxes. 

There  are  many  other  dilliculties  atteiidinij:  this  anions  other 
attempts  to  determine  and  tax  net  earnings  so  as  to  ])rovide  a 
fair  amuial  revenue.  The  alternative  is  of  course,  to  take 
ufoss  ea miners  as  a  basis  fof  taxation.  This  method  of  taxation, 
il  Is  true,  is  not  without  its  own  defects,  but  they  are  nuich 
fewer  and  much  less  serious  than  those  at  tending:  any  other 
sNstein,     There  is,  as  we  have  .seen,  little  or  no  dispute  as  to 


llli;    TAXATION    {)[■   ITIiLIC  S1;K\  ICK   (uUI'uKa  1 1"  ).\s     (i;]l 


what  aro  gross  oaniiims,  and  as  taxatimi  lias  as  lc;ritiiiiatc  u 
olaiiii  a,iiaiii.-t  tlic  j;n)>.>  cariiiiifis  of  a  corixiratioii  a-  aiiv  ilctu 
of  oixTatiiiii;  cxiiciiscs,  it  is  not  inijiist  to  ilcduct  tlic  laxo  fn>m 
gross  cariiiriss,  cvcii  wlicre  no  net  ("ariiiiig>  remain.  \o  ijoiilit, 
as  lu'twccn  coriioratioris  which  arc  ])rospcrous  and  iho~c  which 
arc  not,  tiic  taxes  will  he  felt  with  uiic(|ual  pressure,  hut  >o  will 
every  other  necessary  item  of  operating  expeii-es.  I'.iit  while 
it  is  legitiniatc  to  tax  the  gro>s  earnings  of  corporations  having 
little  or  no  net  earnings,  it  is  doirahie  to  have  a  graijed  rate, 
so  thai  the  taxation  may  hear  more  lightly  on  those  haxing 
little  or  no  net  income,  and  more  heavily  upon  the  more  pro< 
jK'roiis  corporations.  In  lixiiig  the  rate  of  taxation  on  lii-oss 
earnings  according  to  ahilhy  to  i)ay,  the  net  income  of  corpora- 
tions, so  far  as  it  is  ascertainal)le.  may  he  employed  as  a  guide. 
In  practi<(',  however,  it  is  found  that  the  great  majority  of 
normal  puhlic  .service  corporations  will  fall  within  one.  or  at 
inixt  two  classes,  leaving  oidy  exceptional  ca>cs  as  rc(|uiring 
separate  treat  ment. 

Once  it  is  admitted  that  the  earning  power  of  a  corporation 
is  its  true  hasis  of  value  tlic  chii-f  (lue-tion  which  remain-  is  as 
to  the  rate  at  which  the  income,  whether  net  or  gro>s.  is  to  i)c 
taxed.  In  the  case  of  railway  companies,  net  income  i<  nor- 
mally ahout  one  third  of  gross  income.  So  that  approximatelv 
a  tax  of  1  per  cent  on  gross  earnings  would  he  c(|uivalent  to  a 
tax  of  '.i  per  cent  on  net  earnings.  When,  however,  we  attempt 
to  compare  a  tax  on  the  income  of  puhlic  .service  corporations 
with  the  various  taxes  paid  on  jirivate  property,  we  are  imniedi- 
ately  confronted  with  the  dilliculty  of  finding  any  .-ati.-factorv 
ba.-is  for  comparison.  The  only  fair  basis  of  comparixni  would 
he  to  take  the  gross  or  net  earnings  of  both  corporation.-  and 
individuals,  lint  here  we  are  met  with  the  fact  that,  while  we 
<an  ascertain  with  reasonable  accuracy  the  gro>-  earnings  of 
a  corporation,  it  is  almost  impo.'<sible  to  discover  the  gross 
income  of  the  ordinary  business  man.  If  we  turn  to  specilic 
forms  of  property  and  compare  a  tax  of,  say.  '■)  per  cent  on  t  he 
gross  earnings  of  railways,  with  the  common  tax  on  the 
gross  earnings  from  real  estate,  we  should  probably  find  that 
the  railways  wer(>  paying  too  little.  Hut  if  we  took  the  taxes 
l)aid  on  most  other  kinds  of  property  as  a  basis  for  compari-on, 


LIBRARY 


«;:{• 


ST  ATI:    AM)    l.dCAl,   TAXATION 


\vf  >li(.ul.l  pn.hal.lv  find  that  the  railways  w(T»>  puying  too 
iiuicli.  It  is  iiiipn^iliic  hcR' to  p)  into  details  on  tiicsf  iiiattfi-s, 
hut  a  carcrul  study  of  the  siihjcct  will  prove,  1  think,  that  no 
v<'ry  sati>fai-tory  practical  conclusion  can  Ik'  reached  in  atteinl>t- 
in^  to  fix  an  e(iuitai.le  rat<'  of  taxation  for  railways  i  hroujrh 
c(.ni|)aris(.n  witli  the  taxation  of  ordinary  private  property  or 
the  income  derived  from  il .  As  juihlic  service  corjiorat  ions 
must  he  valued  on  a  special  l)asis.  so  their  rate  of  taxation  nnist 
!).•  fix.'.!  upon  a  special  basis.  The  attetnjM,  in  the  interest  of 
a  sui)erficial  and  mechanical  e(iuality.  to  value,  rate  and  tax 
puhlic  service  corporations  on  tiie  same  hasis  as  tl>e  proiH-rty  of 
l)rivate  individuals  cannot  fail  to  re.sult  in  very  real  ineciuality 
in  taxation. 

One  very  imi)ortant  reason  for  the  sjiecial  treatment  of  i)ul)lu- 
service  corjiorat  ions,  as  rejiards  taxation,  lies  in  the  fact  that, 
under  modern  conditions,  the  i)ul)lic  is  ever  more  insistent  on 
reuulatiny:  the  rates  and  char^'es  of  these  corjiorat  ions,  and 
otlierwise  closely  suixTvisiiif:  their  services  and  their  ohliiia- 
lions  to  the  community.  These  public  refrulations  naturally 
restrict  wiihin  very  definite  limits  the  opportunities  of  the 
corixirations  to  aujiment  income,  or  even  to  maintain  it.  If, 
therefor(>.  tlu>  pul)lic  insist  upon  havinji  cheap  rates,  they  must, 
in  ah  fairness,  corresixindinsly  moderate  the  taxation  of  the 
forjiorations:    for  re^rulatinu;  rates  is  levying;  taxes  in  kind. 

.\fter  a  careful  survey  of  tlie  various  aspects  of  the  subject 
and  a  comparison  of  views  with  repn-sentatives  of  tax-gatherers 
an<l  taxi)ayers.  I  have  been  led  to  believe  that  a  tax  of  :^  jier 
cent  on  <rross  income  is  a  sufliciently  hiilh  tax  f^r  railways, 
witli  not  m.ire  than  l'  per  cent  for  other  corporations.  Lower 
rates,  however,  should  be  ])rovided  for  exceptional  eases  where 
there  were  obviously  few  or  no  net  ])rofits;  but,  as  already  indi- 
eated.  the  a!)sence  of  net  income  is  no  valid  argument  against  a 
certain    nit\inuim  of  taxation. 

Some  diliiculty  has  been  met  with,  on  technical  constitutional 
-rrounds,  as  regards  the  taxation  of  public  service  corporations 
wliose  operations  extend,  as  most  of  them  do.  beyondthe  limits 
of  state  or  provincial  taxing  areas.  It  is  even  yet  apparently 
somewhat  of  a  moot  question  as  to  whether  it  is  constitutionally 
admissible  for  a  State  to  tax  a  corporation  upon  its  earnings. 


THE  TAXATION   oF    PlIU-IC   SKUVlL'l::   CDUroilA  ITONS     (VMi 


whcro  tliosc  ;irr  dcrivfil  fnnii  iiitcrstuto  services.  Hut  wliere 
tliis  position  is  i:ii<eii  witli  rclVreiice  to  eariiiiijis,  it  is  fonunoiily 
iield  to  he  (|uite  collet  it  utioiial  to  tax  interstate  corporations 
upon  tile  l)a>is  of  ilieii'  i)ro|H'rt y  or  I  licir  l'ranclii.-e>.  a.>  within  i  In- 
State,  ^'et  't  i-  perfectly  well  known  thai  the  value  of  t  he 
properly  or  the  franchise  within  the  State  is  really  (leterniined 
hy  the  relation  of  tlie-ie  to  the  whole  sy>t(ni.  Moreover',  t  he 
value  of  the  property  as  a  whole  is  chiedy  dependent  upon  the 
extent  of  the  inter.-tate  trallic  Taxes  also,  on  whatever  l)asis 
levied,  are  ohviously  paid  out  of  inter-tate  e;irnin;;s.  The 
di^tuictioii  therefore  lietween  a  properly  tax  a- coti>l  il ul  ional 
and  a  fax  on  earniiifrs  as  unconsiiiutional  is  a  lei:al  tictio/i  of  a 
very  inarti-tic  character.  Hut  like  so  ni;iny  other  dilllculties 
ari^inji  from  lii-toric  conditions  it  ari-es  from  the  fai't  that  a 
.ser\ice  which  was  at  one  time  purely  local  has  enormou-ly 
expanded  in  importance  and  ran^e,  and  has  become  the  function 
of  interstate  corporations  many  of  which  are  now  of  (piito 
national  character.  This  ex])an>ion  of  s«n"ral  interests  from 
local  to  national  importance  is  leadinji  many  of  those  who  full>' 
respect  state  or  pro\incial  ri<:hts,  to  recognize  that  a  ser\ice 
wiiicli  has  |)asse(l  beyond  the  ranjre  of  slate  or  )iro\incial  terri- 
tory and  Ix'come  national  in  its  character,  should,  if  necessary, 
be(lealt  with  by  national  law>.  The  normal  line  of  escape  from 
the  absurdities  born  of  constitutional  interpretations  based  on 
more  elemental}-  conditions  which  are  rai)i(lly  pas-ini;  away, 
would  be  for  the  various  ."states  or  provinces  to  arrange  ])eriodic 
conferences  lo  determine  the  fair  amount  of  the  earning  power 
of  each  system  as  a  whole  which  should  be  assij;ned  to  the  indi- 
vidual Stat(>s  or  provinces.  Should  they  lind  it  imi)o>'sible  to 
airree  \i])on  such  an  apjiort ionment ,  they  miudit  either  call  upon 
or  permit  the  f(>d;'ral  or  nation.al  ;:overnmeiU  to  assess  —  not  to 
tax  —the  earninjrs  of  jxiblic  servii'c  corporal  ions,  di>t  ributinii 
the  values  anioufi  the  different  States  or  province^  upon  an 
(•(piitable  basis.  Kither  method  would  avoid  the  increasinir 
confu>ion,  injustice  and  ine(iuality  which  result  from  leavimi 
the  taxation  of  interstate  public  ser\ice  corpoi-ai  ions  to  the 
c.iprice  of  individual  States.  Hy  purely  ariiiirary  systems  of 
valuation,  ind'vidual  States  and  provinces  have  been  .able 
to  levy  more  than  their  ju>t  >hare  of  taxation  upon  the  cori)ora- 


(i:u 


SI  \Ti:    AM)    l.o(M.    rWAIloN 


tiuii-  whci-c  line-  n|'  t  r;tri>|i(irtalinii  nr  I  r;iti>tiii~>inn  pit-s  tlinmyli 
I  luir  lfniiiii-\ . 

Ill  ili-liilMitiii^  within  caili  State  the  asscsstiictit  iifipiiitinticcl 
ti'  il  !>>■  niiililal  airrcciiK  III  aiiniiiii  the  States  or  liv  tlie  iiatidiiai 
;iii\  eiliiiielit .  the  l!illliic||)alit  le-  liii^ht  >tiil  lie  aliiivcij  to  a>.-e.-,-, 
the  \ahie  of  the  laiuN  ami  luiihliims  owned  li\-  a  |)!il)lic  »er\  ice- 
(■oi|)oiatioii  within  liieir  liiiiit>  on  the  same  l'a>i>  a>  ailjoininn 
laihl-  ami  I'Uihliim-.  At'ler  the-e  taxes  were  .lediiele.l  from 
the  m-o>-.  aiiioimt  allo\\C(l  to  earli  State,  the  reliiailhler  could 
lie  a|i|ilied  to  -late  or  iiiuniri|)al  purposes,  as  determined  In' 
the  Iciii-lalure  >pf  eacli  .Stativ 

It  is  uiineres-arv  in  connection  witii  this  lirii'f  >tateinent 
to  -|)ecify  all  the  advant,ii:es,  practical  ;itid  -cieiitihc.  which 
would  re-ult  from  a  uniform  asse»ment  and  dist  i  ilml  ion  of 
the  taxation  of  puMie  service  corporation-  upon  the  lia-is  of 
their  earniim-.  it  i-.  howcxcr.  oli\ioUs  that  e\-er\-  stej)  in  tlu! 
cxpan-ion  of  the  eciiiiomic  interests  of  the  I'liited  States  and 
oi  C.'inada  inxiilves  the  iiicre.asiiiu'  im|iortaiice.  alike  from  a 
loi-.d  and  from  a  natioii.d  point  of  \  iew.  of  i\io  services  of  tr.aiis- 
|>ortation  and  tr.Jismis-ion  and  the  corporal ioti.>  which  sup|)lv 
them.  'I'hi-  exp.insioii  involves  the  investment  of  n(>w  volumes 
of  n.itioiial  wealth  with  increasim:  aiiirreirale  return-  in  the  way 
of  income,  and.  coiisecjueiitly.  of  tax-|)ayin<:  ])owor.  i5ut  as 
tlie-e  forms  of  wealth  cannot  ho  ilealt  with  ailequately  or  justiv 
li\'  the  older  methods  of  loc;d  taxation,  it  is  iinperatixc  that 
.some  movement  should,  he  made  toward  devisiiiii  a  method  of 
!iss(.s<iiient  ami  dist  rihution  on  :i  wider  liasis  and  in  accord.aiice 
with  their  true  economic  \alue.  Onlv  in  thi.s  way  can  we  meet 
actual  conditions  in  a  practical  manner. 


'  lp™.„„    w 


gw  f  jt     ^"  ■ 


~?0i 


